When you can write software with fewer programmers, it saves you more than money. As Fred Brooks pointed out in The Mythical Man-Month, adding people to a project tends to slow it down. The number of possible connections between developers grows exponentially with the size of the group. The larger the group, the more time they'll spend in meetings negotiating how their software will work together, and the more bugs they'll get from unforseen interactions. Fortunately, this process also works in reverse: as groups get smaller, software development gets exponentially more efficient. I can't remember the programmers at Viaweb ever having an actual meeting. We never had more to say at any one time than we could say as we were walking to lunch.
If there is a downside here, it is that all the programmers have to be to some degree system administrators as well. When you're hosting software, someone has to be watching the servers, and in practice the only people who can do this properly are the ones who wrote the software. At Viaweb our system had so many components and changed so frequently that there was no definite border between software and infrastructure. Arbitrarily declaring such a border would have constrained our design choices. And so although we were constantly hoping that one day ("in a couple months") everything would be stable enough that we could hire someone whose job was just to worry about the servers, it never happened.
I don't think it could be any other way, as long as you're still actively developing the product. Web-based software is never going to be something you write, check in, and go home. It's a live thing, running on your servers right now. A bad bug might not just crash one user's process; it could crash them all. If a bug in your code corrupts some data on disk, you have to fix it. And so on. We found that you don't have to watch the servers every minute (after the first year or so), but you definitely want to keep an eye on things you've changed recently. You don't release code late at night and then go home.
With server-based software, you're in closer touch with your code. You can also be in closer touch with your users. Intuit is famous for introducing themselves to customers at retail stores and asking to follow them home. If you've ever watched someone use your software for the first time, you know what surprises must have awaited them.
Software should do what users think it will. But you can't have any idea what users will be thinking, believe me, until you watch them. And server-based software gives you unprecedented information about their behavior. You're not limited to small, artificial focus groups. You can see every click made by every user. You have to consider carefully what you're going to look at, because you don't want to violate users' privacy, but even the most general statistical sampling can be very useful.
When you have the users on your server, you don't have to rely on benchmarks, for example. Benchmarks are simulated users. With server-based software, you can watch actual users. To decide what to optimize, just log into a server and see what's consuming all the CPU. And you know when to stop optimizing too: we eventually got the Viaweb editor to the point where it was memory-bound rather than CPU-bound, and since there was nothing we could do to decrease the size of users' data (well, nothing easy), we knew we might as well stop there.
Efficiency matters for server-based software, because you're paying for the hardware. The number of users you can support per server is the divisor of your capital cost, so if you can make your software very efficient you can undersell competitors and still make a profit. At Viaweb we got the capital cost per user down to about $5. It would be less now, probably less than the cost of sending them the first month's bill. Hardware is free now, if your software is reasonably efficient.
Watching users can guide you in design as well as optimization. Viaweb had a scripting language called RTML that let advanced users define their own page styles. We found that RTML became a kind of suggestion box, because users only used it when the predefined page styles couldn't do what they wanted. Originally the editor put button bars across the page, for example, but after a number of users used RTML to put buttons down the left side, we made that an option (in fact the default) in the predefined page styles.
Finally, by watching users you can often tell when they're in trouble. And since the customer is always right, that's a sign of something you need to fix. At Viaweb the key to getting users was the online test drive. It was not just a series of slides built by marketing people. In our test drive, users actually used the software. It took about five minutes, and at the end of it they had built a real, working store.
The test drive was the way we got nearly all our new users. I think it will be the same for most Web-based applications. If users can get through a test drive successfully, they'll like the product. If they get confused or bored, they won't. So anything we could do to get more people through the test drive would increase our growth rate.
I studied click trails of people taking the test drive and found that at a certain step they would get confused and click on the browser's Back button. (If you try writing Web-based applications, you'll find that the Back button becomes one of your most interesting philosophical problems.) So I added a message at that point, telling users that they were nearly finished, and reminding them not to click on the Back button. Another great thing about Web-based software is that you get instant feedback from changes: the number of people completing the test drive rose immediately from 60% to 90%. And since the number of new users was a function of the number of completed test drives, our revenue growth increased by 50%, just from that change.
In the early 1990s I read an article in which someone said that software was a subscription business. At first this seemed a very cynical statement. But later I realized that it reflects reality: software development is an ongoing process. I think it's cleaner if you openly charge subscription fees, instead of forcing people to keep buying and installing new versions so that they'll keep paying you. And fortunately, subscriptions are the natural way to bill for Web-based applications.
Hosting applications is an area where companies will play a role that is not likely to be filled by freeware. Hosting applications is a lot of stress, and has real expenses. No one is going to want to do it for free.
For companies, Web-based applications are an ideal source of revenue. Instead of starting each quarter with a blank slate, you have a recurring revenue stream. Because your software evolves gradually, you don't have to worry that a new model will flop; there never need be a new model, per se, and if you do something to the software that users hate, you'll know right away. You have no trouble with uncollectable bills; if someone won't pay you can just turn off the service. And there is no possibility of piracy.
That last "advantage" may turn out to be a problem. Some amount of piracy is to the advantage of software companies. If some user really would not have bought your software at any price, you haven't lost anything if he uses a pirated copy. In fact you gain, because he is one more user helping to make your software the standard-- or who might buy a copy later, when he graduates from high school.
When they can, companies like to do something called price discrimination, which means charging each customer as much as they can afford. [8] Software is particularly suitable for price discrimination, because the marginal cost is close to zero. This is why some software costs more to run on Suns than on Intel boxes: a company that uses Suns is not interested in saving money and can safely be charged more. Piracy is effectively the lowest tier of price discrimination. I think that software companies understand this and deliberately turn a blind eye to some kinds of piracy. [9] With server-based software they are going to have to come up with some other solution.